CASE 2

A wealthy businesswoman, Ellen Davila, has hired you and a former classmate from National Teachers College to advise her regarding her small merchandising business that focuses mainly on offline, retail sales. The said company was organized three years ago and was operating profitably until the NCOV pandemic came.

You: So the pandemic really had a great impact to your business, Ms. Davila?

Ms. Davila: Yes, plus I am having issues because I focus mainly on offline sales. I think I am too old to learn about technology.

Colleague: Besides, there will be an added cost in case you invest in technology because you will train your staff and you will need budget for system maintenance.

Ms. Davila: Uhh.. ohhh. So I think I will just have to close this business in the coming months.

You: Dont worry, Ms. Davila. We got you!

*After browsing through the audited copies of financial statements, you and your colleague came up with the simple income statement for the year*

Sales P500,000

Variable Cost (350,000)

Contribution Margin P150,000

Fixed Cost (180,000)

Operating Loss P(30,000)

Colleague: Ms. Davila, you have to achieve sales of P700,000 so your business can have enough revenues to cover your costs.

Ms. Davila: That is impossible. Achieving extra 40% this pandemic? I am even having a hard time getting a constant above P300,000 annual sales.

Colleague: In that case, you would have to consider closing the business now. Else, you will lose even your capital especially that the pandemic is not showing any signs of stopping now.

Ms. Davila: Is that really final? I hope not!

Required: Based on the analysis made by your colleague and the flow of discussion between them, discuss the best possible recommendation to Ms. Davila.